S&P cuts Japan credit rating outlook

TOKYO: Japan's sovereign credit rating outlook was lowered by Standard and Poor's (S&P) because of diminishing "flexibility" to cope with a swelling debt load and concern about the lack of a plan to rein in budget deficits.

The policies of Prime Minister Yukio Hatoyama's government "point to a slower pace of fiscal consolidation than we had previously expected", S&P said yesterday. Japan's rating could be lowered from the current AA, the third highest, if economic data "remain weak" and measures to buttress growth "are not forthcoming", the company said.

Any cut to Japan's local-currency rating would be the first since 2002, according to data compiled by Bloomberg. Yesterday's move highlights concerns that the shrinking population and contracting gross domestic product will erode the pool of savings that has kept yields on its benchmark 10-year notes more than 2 percentage points lower than US Treasuries.